* U.S. retail sales strong, but market still set on Fed cut
* Dollar gains, sterling stricken by hard-Brexit fears
* World shares just off 10-day highs, Europe flat
(Updates, adds charts)
By Sujata Rao
LONDON, July 17 (Reuters) - Resurgent trade tensions,
concern over the outlook for corporate America and the growing
risk of a chaotic Brexit in the United Kingdom curtailed
appetite for equities on Wednesday and stoked demand for "safe"
government bonds.
U.S. President Donald Trump renewed his threat to tax
another $325 billion of Chinese goods, amid nervousness over
when the two sides will resume trade talks. But the United
States could also face Chinese sanctions, following a World
Trade Organization ruling on Tuesday. [nL8N24H53U
After surging to record highs recently on Federal Reserve
rate-cut signals, Wall Street has grown nervous this week as big
banks reporting quarterly earnings -- Citi, JPMorgan and Wells
Fargo -- have recorded drops in net interest margins, a sign low
interest rates are squeezing bottom lines.
Bank of America, Bank of New York Mellon, Netflix, IBM and
eBay are among the companies reporting results later in the day
and investors will watch for signals on the profit outlook.
"The market is over-extended. The anticipation is for a lot
of liquidity injections and rate cuts and there's little room in
the market for disappointment in corporate earnings," said
Francois Savary, chief investment officer at Swiss wealth
manager Prime Partners.
"If there is disappointment in earnings-per-share, that will
drive more consolidation in the market," he predicted.
The fear is central banks may find it hard to rescue a world
economy under pressure from the year-long trade conflict -- the
latest sign of which came from Singapore, whose exports sank by
the most in six years in June. Equity futures for the S&P500, Dow Jones and Nasdaq suggest
Wall Street will open up 0.15% to 0.25%, while MSCI's global
equity index held just off recent 10-day highs. .MIWD00000PUS
ESc1 . A pan-European benchmark weakened for the fourth
straight day .STOXX .
A Fed rate-cut cycle would put further pressure on U.S. bank
margins. Money markets are FEDWATCH are 100% priced in for
three rate cuts of 25 basis points each by next March. Some
banks, such as Barclays, predict three cuts by the end of the
year.
Those wagers have not budged even after a surprisingly
strong U.S. retail sales report on Tuesday, robust June jobs
data and the biggest rise in New York manufacturing in over two
years. In fact, Chicago Fed President Charles Evans
touted a 50-basis-point cut this month. But those expecting three rate cuts this year could be
disappointed, Savary said, because that magnitude of easing
would be "compatible with a recession."
Michelle Girard, chief U.S. economist at NatWest Markets,
said domestic data would not deter the Fed.
"The Fed knows the U.S. consumer is strong; policymakers are
worried about the downside risks associated with global growth
and weak manufacturing/business investment, which is why they
believe a rate cut is appropriate."
Along with the trade uncertainty and soft equity markets,
that kept bonds well-bid -- U.S. Treasury yields, which rose
after the retail data, inched lower again and German bonds also
saw a fall in yields. US10YT=RR DE10YT=RR .
STERLING STRICKEN
Fed expectations have not weakened the dollar much. It stood
around a one-week high against a basket of currencies .DXY
after the previous day's half-percent jump.
The dollar tends to benefit from trade war jitters, but it's
backed by higher interest rates than most other major
currencies. It is also getting a boost from sterling, which is
at 27-month lows on fears Britain will tumble out of the
European Union with no trade agreement to soften the blow.
The pound fell further below $1.24, bringing losses this
month to almost 2.4%. GBP=D3 It has fallen 8% from its March
peak of $1.3383.
The euro remains under pressure, after losing 0.4% on
Tuesday. Weak business sentiment data heightened expectations
the European Central Bank would cut rates twice this year from
their current minus 0.4% level EUR=D3 .
Gold fell 0.2% to $1,403 per ounce XAU= . Oil prices
stabilised after falling more than 3% earlier. LCOc1 .
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One direction for sterling https://tmsnrt.rs/2NZstIC
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